Another Looming Trouble: Why Nigerians Are Just In Love With Ponzi Schemes

In the 1990s, Mavrodi Mondial Moneybox otherwise known as МММ, a Russian company founded by Sergey Mavrodi, Vyacheslav Mavrodi, and Olga Melnikova perpetrated one of the world’s largest Ponzi schemes of all time. According to Wikipedia between five and ten million people lost their savings to the scheme.

 

A Ponzi scheme also according to Wikipedia, is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

Two years ago, Mrs Dolapo Adeoya, a Micro finance bank staff participated in the scheme. According to her she heard about MMM from her father in Lagos after the old man had unbelievably made huge profits from the little amount he invested in it.

 

“She put her everything in it. On her second recoupment, she made almost N100,000. The guaranteed N600,000 was the attraction, but there is nothing really guaranteed in life. The whole house began to pray because deep inside, many of us had begun to query how this scheme actually worked and how it was sustained. Nobody knew,” she said.

 

Less than two weeks into the six weeks gestation period, MMM went under. Except for Mrs Adeoya, others close to her like her father and sister lost a lot of money to the scheme.

 

“I will never participate in such schemes again,” she told Sunday Tribune, saying that though a new ponzi scheme is catching fire, her sister and dad are not interested.

 

“We have all learnt our lessons in diverse ways. For me, Ponzis are scams. Schemes done on phones, to me, are fraudulent,” she said revealing that many Nigerians are now wiser and would rather approach a micro finance bank for a loan to do productive businesses.

 

 

Unfortunately despite the disappointments that trailed MMM, many Nigerians are still rushing into another ponzi scheme. Sunday Tribune spoke with a cross section of sociologists and psychologists on why this is so.

 

Though experts, some of them are surprised that Nigerians could still go back to attempt something which brought them so much sorrow in the past.

 

Dr Andrew Adebayo, Chief Medical Director, Yaba Federal Neuro-psychiatric Hospital, Lagos giving a psychological dimension to the problem said: “It is not just a Nigerian problem; it is an endemic human problem.

 

 

Dr Adebayo however advised everyone to work on their greed, because the brains behind the ponzi schemes often launder their images by associating their brands with established religious institutions in order to poach more gullible members and they continue to thrive.

 

Another psychologist, Professor  Oyesoji Aremu of the Department of Psychology, University of Ibadan, explaining the problem while speaking with Sunday Tribune said: “human nature is a bundle of characteristics, including our ways of thinking, feeling, and acting, which humans naturally have.

 

 

 

According to Professor Aremu, poverty also plays a huge role in the ignorance that pervades the society which engenders a craze for easy money. He added that poverty could drain people mentally, therefore people could become so desperate as to want to make money by all means.

 

“Studies have shown that attitude of people towards poverty is the same, as everyone detests it. Often, poverty shifts peoples’ focus and could also spur people to engage in any behaviour to overcome the socially debilitating state. This, therefore, accounts for the get-rich-quick syndrome, especially among the struggling class. However, poverty is simply a mindset which can be neutralised by deliberate efforts and appropriate value systems,” he said.

 

 

A former banker, Chidi Ogbolu, sharing his views on ponzi schemes and how they affect financial institutions, said negative impacts on financial institutions hardly happen “because some guys get conned by fraudsters. That is not enough to sink a microfinance bank, let alone a commercial bank.”

 

Ogbolu also listed what he called “the desire for quick, out-of-the-norm, long-throat returns, which ultimately translates to greed,” as the major attraction for those who are desperate to go back to a ponzi scheme despite the disappointment of the past.

 

While adding to the discussion, Mrs Adeoya who spoke with Sunday Tribune earlier said: “Ponzis have nothing in common with commercial banks. However, because the cash transactions have to be moved/transferred via the financial systems, such funds must necessarily move through the banking system. But many financial organisation staff still don’t trust MMM or Boom, or any other faceless financial schemes.”

 

 

Ponzi schemes basically do the following in its operations. They convince a few investors to place money into the investment; after the specified time, return the investment money to the investors plus the specified interest rate or return; use success of earlier investors to convince more investors to place their money into the system. Typically, the vast majority of the earlier investors will return; repeat steps 1 through 3 a number of times. During step 2 at one of the cycles, break the pattern. Instead of returning the investment money and paying the promised return, escape with the money and start a new life.

 

Mr Ogbolu, speaking further on ponzi operations said they are fraudulent transactions where some persons promote a non-existent company, and pay off earlier investors from funds received from later investors.

 

“Sometimes, the so-called company does exist, however, neither the volume of business they do, nor the industry/sector they operate in, can justify the returns being paid to ‘investors’, he told Sunday Tribune.

 

He, however, absolved the Central Bank of Nigeria of any blame in the financial transaction since the decisions to participate in such faceless schemes are taken by private individuals about their personal funds/investments.

 

“The CBN and other government agencies have put out several warnings, but no one is going to tell you how to use/invest your money. So, if you get burned, you bear the consequences alone,” he said.

 

 

While Boom, the new scheme seems to be ‘booming’ as more Nigerians are getting drawn to the scheme, relying on testimonies of those who are benefitting for now, some Nigerians are innocently participating in another scheme, Nou Rich, which is also suspected to be a ponzi scheme. Similarly this scheme works by referring a client before one gets paid.

 

“When your upline refers, you get paid. When your down line refers, you get paid. When your team people refer, you get paid,” revealed a Lagos-based banker who did not want to be identified his name in print.

“For those in the platinum category (N350,000 to N520,000), you earn 12 per cent weekly, while those in the gold (N180,000 to N300,000) earn 10 per cent and silver (100,000 – 150,000) earn 8 per cent. This scheme is very popular among traders. Maybe with time, it will fascinate none traders,” the Lagos-based banker said.

 

Since many gullible Nigerians are not bothered by financial losses through ponzi schemes, going ahead to invest in new ones is like walking into a ditch with one’s eyes open. However, only time could tell if the new schemes would be rewarding or simply go the way of their predecessors.

 

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Source: Nigerian Tribune